Is AstraZeneca a Buy as It Eyes the Weight Loss Market?

Medications used to treat diabetes and obesity are the hottest commodities in healthcare right now. Novo Nordisk's Ozempic and Wegovy and Eli Lilly's Mounjaro and Zepbound have all become blockbuster drugs, and their momentum doesn't seem to be going away.

While Novo Nordisk and Lilly are the undisputed leaders in weight management right now, a number of pharmaceutical companies are looking to enter the space. Earlier this month, British pharma leader AstraZeneca (NASDAQ: AZN) announced some encouraging data on its own obesity drug candidates.

Let's dig into the situation at AstraZeneca, and explore whether this is a good opportunity to buy the stock, as the company sets its sights on healthcare's next big renaissance.

AstraZeneca has some exciting things going on...

AstraZeneca currently has three programs targeting diabetes and obesity care. During the ObesityWeek conference earlier this month, management provided detailed updates around its three weight loss candidates: AZD5004, AZD6234, and the combo treatment of AZD6234 plus AZD9550.

For now, the medications developed by Novo Nordisk and Lilly are taken by injection. Although Ozempic, Mounjaro, and their sibling treatments have been successful, many qualified patients may be forgoing them due to a dislike of injections and needles.

Image source: AstraZeneca investor relations.

AstraZeneca's AZD5004 is a particularly interesting development because it's an oral glucagon-like peptide-1 (GLP-1) medication -- a major differentiation from the current mainstream solutions. According to data from a phase 1 trial, patients experienced an average weight loss of 5.8% when taking a 50mg dosage of AZD5004.

While AstraZeneca's various weight loss candidates all appear to be moving further down the road in clinical trials, there are some other important details to note.

...but investors shouldn't put the cart before the horse

On the surface, AstraZeneca might look like it's on a path to leapfrog Eli Lilly and Novo Nordisk, thanks to its innovative oral GLP-1 solution and approach to combining different candidates together. While this all makes for an exciting outlook, smart investors know there's always more information to uncover.

For starters, AstraZeneca is far from the only company looking to disrupt Lilly and Novo Nordisk. Larger pharmaceutical companies such as Pfizer, Amgen, and Roche Holding, as well as clinical-stage operations like Altimmune and Viking Therapeutics, are all vying for their own pocket of the weight loss realm.

Both Roche and Viking are also pursuing oral formulations of their respective weight loss candidates in an effort to differentiate from today's available solutions. And while that approach warrants merit, I wouldn't be so fast to dismiss Lilly and Novo Nordisk from the discussion.

Lilly and Novo Nordisk also have oral weight loss candidates undergoing clinical trials. Novo Nordisk's amycretin is currently being evaluated for different applications across phase 1 and 2 trials, while Lilly's orforglipron is being explored in phase 3 clinical studies.

Image source: Getty Images.

Is AstraZeneca stock a buy?

The chart below compares the forward price to earnings (P/E) ratio of AstraZeneca to multiples in a peer set of leading pharmaceutical companies that are pursuing the weight loss market. The clear standouts illustrated above are Eli Lilly and Novo Nordisk, both of which are trading at premium valuations compared to the rest of the cohort.

I think this dynamic suggests that investors are bullish on the established players, and perhaps more skeptical of the companies that are yet to really make a splash in the diabetes or chronic weight management spaces.

AZN PE Ratio (Forward) data by YCharts.

While AstraZeneca may look like a bargain compared to Lilly or Novo Nordisk stock, I think its discounted valuation is warranted. For now, AstraZeneca's progress with its weight loss candidates is respectable -- but not much more. The company has a long way to go with additional research and development, and it could be several years before the Food and Drug Administration (FDA) approves AZD5004 or its counterparts.

I would say that AstraZeneca stock is not a buying opportunity at the moment, despite some interesting news on its weight loss ambitions. I think a prudent approach for the time being would be to monitor further trials of AZD5004 and AstraZeneca's other candidates. As time goes on, it should become clearer whether or not the company has a realistic shot at disrupting incumbents like Novo Nordisk and Eli Lilly.

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Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Amgen, AstraZeneca Plc, Novo Nordisk, and Roche Holding AG. The Motley Fool has a disclosure policy.